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Alan Finkel's report won't stop the bickering over energy policy

Alan Finkel's report won't stop the bickering over energy policy

Just as domestic politics in May was dominated by the budget, early June looks certain to be dominated by the energy crisis. And crisis it still is, despite a temporary lull in the furious argument about how best to deal with it.

That's largely because governments and businesses are awaiting the arrival of the Finkel report as the defining event for the energy industry of the future. It means the review by Australia's chief scientist, Dr Alan Finkel, is achieving the reputation of holy writ providing the necessary blueprint for Australia's energy policy and guide to getting the country out of the energy mess it's in.

Unfortunately, what will be the practical effect of the Finkel report looks a little more like a scene from Waiting for Godot. The federal government keeps referring to the fact this is a report to the Council of Australian Governments – meeting on June 9 – rather than a creature of Canberra. In other words, the state governments must share responsibility for whatever policies come from Finkel in order to create a truly national energy plan.

That is true, of course. But the recent sorry history of federal-state reforms suggest any agreement is likely to remain limited to a range of significant but still technical issues while more fundamental reforms are delayed indefinitely despite the urgency of the problem affecting the national electricity market.

So there may be longer timelines recommended for the closure of coal-fired power generators, for example, along with new financial incentives for companies and customers to curb demand and increase availability of baseload power when needed. New rules for the market operator and regulators in terms of the mechanics and timing of pricing are also likely – all of which would be useful improvements.
But the policy dilemmas facing industry and all consumers are likely to remain stubbornly unresolved. Whether it's the climbing price of gas and electricity, the risk of blackouts or the integration of much more renewable energy into the system, there are still far too many competing and contradictory agendas to be easily fitted into any Finkel framework.

Environment and energy minister Josh Frydenberg will be trying to marshal forces on behalf of the Turnbull government to demonstrate cooperative reform is still possible.

"It's time the states recognise that some of their policy settings have compromised energy security and affordability," he tells The Australian Financial Review.

No new taxes

He cites the "mindless" state moratoria and bans on gas exploration and development, the unrealistically high renewable energy targets of various state governments and the lack of preparation, particularly in South Australia, for the rapid increase in renewables.

"Correcting the error of their ways and showing a willing to work with – rather than blame – the federal government will go a long way to delivering better outcomes for households and business post-Finkel," he declares.

But the various states are unlikely to change course on policies like state-based targets and bans on gas based on more admonitions from Canberra. Frydenberg also refuses to acknowledge the other big contradiction at the heart of the government's environment and energy policy.

This is that the Coalition will not back any proposal that can be described as a price or tax on carbon. A party furore erupted late last year when Finkel's draft report suggested the notion of an emissions intensity scheme – which effectively taxes higher carbon emissions above a certain benchmark. Malcolm Turnbull was forced to rule out any such option to quell an internal insurrection.

Instead, the political conceit remains that it's possible to produce the policy trifecta of more affordable, more reliable and cleaner energy as such goals often pull in opposite directions. Technology may be changing this equation – particularly advances in battery technology – but not quickly enough to make the balance more stable over the next several years.

No wonder business investment in the renewables sector is so skittish while no bankers are willing to finance new coal fired power generators no matter how much more energy efficient they are supposed to be. No one can be sure of the rules.

Will Australia signing up to the Paris agreement to reduce emissions 26-28 per cent by 2030 also require putting more billions of dollars into the Coalition's emissions reduction fund, for example? Would a future Labor government really be able to deliver on its own 50 per cent renewable energy target over that same time frame? And will the pressure on ever-higher prices for power continue to escalate for businesses and households?

There's yet another government review, into climate change, due later this year, for example. Presumably, any major Finkel "reform" will wait to take that into account.

Then add in the prospect of yet another federal election, perhaps as early as late next year. Unlike the last election, the Turnbull government will campaign on energy policy following the South Australian blackouts and growing community concerns about reliability and cost.

It's also why Turnbull has threatened the big Queensland LNG exporters with federal bans on export unless they contribute enough gas to ensure scarce domestic supply. It's why he has announced a massive Snowy 2.0 project to increase greater use of hydro and his own reputation as a "nation-building" prime minister. It's why the federal government and the Andrews government in Victoria loudly lamented the closure of the heavily polluting, brown coal power generator Hazelwood in March despite presiding over policies that made it completely uneconomic for the owners to continue to invest.

None of this is easy for a chief scientist to try to mesh together coherently. The politics will only just be starting when he presents his report.